Certain categories of information, whether commercial or personal, can be incredibly valuable. In particular, a business idea that has the potential to revolutionise the market can constitute important and commercially sensitive information that should form the subject matter of a non-disclosure agreement if the idea is expected to be shared with third parties.
In a business context, NDAs are useful in helping organisations protect their sensitive commercial information, intellectual property and trade secrets. It is important to protect these for many reasons, but primarily because the protection of this information prevents the disclosure of valuable commercial know-how to competitors and minimises the risk of business losses.
This article will present a brief overview of NDAs and why an organisation needs to have an NDA in place when developing an app, especially if it plans to outsource the development to mobile app development companies.
What is an NDA?
A non-disclosure agreement (NDA), also known as a confidentiality agreement, is a legal agreement, typically between two parties, that prevents one, both or all of the parties involved from disclosing confidential information to third parties or the use of the information for an unauthorised purpose. For start-ups, in particular, an NDA is an important legal document on which they should seek legal advice.
The obligations in the non-disclosure agreement are usually imposed for a defined period of time, apply only to clearly defined information and cease to have effect in certain circumstances - for example, where the information protected under the NDA is made public.
An NDA is effective because it is legally binding and is an enforceable legal contract. The breach of its terms will mean that the innocent party can pursue legal remedies including damages.
NDAs can be used in many different business contexts. For example, businesses often enter into mutual NDAs with potential partners in order to protect sensitive commercial information that may be disclosed by both parties throughout the partnership.
Using an NDA means that the business can disclose confidential information about its software and its processes to a third party for a particular purpose, like web or mobile app development, while ensuring that the third party is contractually obliged to keep the information confidential.
An NDA also prohibits the receiving party from using the information for unauthorised purposes. In the context of app development, this means the web or mobile app development company to whom the project is outsourced cannot use the information given to it by its client for the purpose of developing the app itself for its own financial gain.
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Why is it important to have an NDA in place when developing an app?
Mobile and web applications start out as ideas. For companies that don't have in-house software developers, external developers often have to be called in. When a business develops an idea for an app and outsources the work required to execute the idea to freelancers or to app development companies, it is prudent to have a non-disclosure agreement in place to ensure that the software behind the app is not shared with third parties or with the business's competitors, especially where the app is particularly novel or uses new features.
In these situations, the business must share its ideas and work on the app to enable the project to be completed. As in any case when confidential information (particularly when this information is commercially sensitive), an NDA should be used to ensure that such information is not leaked or exploited.
The use of NDAs in this context ensures that the idea behind the app, and the app itself, are protected. Start-ups must appreciate this and make good use of non disclosure agreements whenever they must share confidential information, as when information is shared with potential investors.
The NDA should also be signed to ensure that the business's competitors don't become aware of the mobile app idea (and the software behind it) and exploit this information for their own gain, thus costing the business its competitive edge.
Important considerations and key terms
While each organisation's NDAs will be unique (depending on the exact nature of the information to be protected and the authorised uses of that information), the format of NDAs is generally standardised and imposes standard obligations on the recipient party - not to discuss the subject matter of the NDA with a third party and not to use the information in an unauthorised manner.
Most NDAs will typically centre on the following:
- Which parties are bound by the agreement?
- The definition of "confidential information" i.e. exactly what information is to be kept confidential
- The consequences of a breach
The disclosing party must be clear about the exact purpose for which the receiving party can use the information, and must ensure that the confidential information to be protected is set out as specifically as possible in the NDA.
The bottom line
Keeping confidential information safe and secure by using an NDA often means an organisation can retain its competitiveness and prevent any losses that may follow the disclosure of sensitive commercial information. Using an NDA when appropriate also ensures that a company's intellectual property, trade secrets and important business ideas remain confidential.
How do I make an NDA?
An NDA can be created on a contracting platform such as Legislate by answering a few simple questions and choosing the key terms of your agreement. The NDA can be signed and sent to the other party to sign on Legislate as well. Unlike getting templates online, Legislate guarantees NDAs which are up-to-date with the law, lawyer-reviewed and simple to understand. You can read our tutorial on NDAs.
If you want to learn more about NDAs download our free contract handbook for more information.